FX Flows

From the FXWW Chatroom: Bad day for Sterling yesterday but not this morning. GbpUsd was 1.2126 at the New York close and got escorted to 1.2107, believed option gamma trading. There was a sudden turnaround without any news headlines.

Traders pointed to a story in Bloomberg that PM Theresa May has accepted that Parliament should be allowed to vote on her plan for Brexit, but asked lawmakers to do it in a way that gives her space to negotiate. The story from BBC Newsnight was discounted. BBC Newsnight said UK government may continue payments to retain rights/market access to EU.

Short covering of Gbp versus Usd and Eur ensued, GbpUsd rose to 1.2286 and cross down to 0.90065 from 0.9120. One FX newswire said leveraged funds who got stopped out earlier were trying to reinstate their shorts as we approach high-side of 1.23’s. One Swiss name sat of the offer at 1.2290 and took very long time to chew away. Eventually we did and GbpUsd took out some weak stops. The newswire said stop buy orders are placed near 1.2375 but I suspect the real deal is around 1.2485.

Euro, AudUsd and NzdUsd mildly higher on the Gbp move. Euro rose to 1.10685 but when liquidation of EurGbp continued, EurUsd got pushed back to 1.1041 where bids were encountered below 1.1040.

Story in WSJ said Portugal’s souring investment climate and weak economic growth are raising concern across Europe and beyond that the country, which could choke again on a debt that is now nearly 130% of its gross domestic product. There was a report in CNBC over the weekend that DBRS will review Portugal outlook on Oct 21. In recent weeks, yields on Portuguese debt have risen on fears that ratings agency DBRS would cut the country’s rating to junk, following similar moves by Moody’s, Standard & Poor’s and Fitch.

Long term trendline for AudUsd support comes in at 0.7515, while the 100-Day SMA is at 0.7531. Most offers we hear are near the 0.7600. Some said it was AudNzd buying that pushed AudUsd to 0.7588. Might have been stop loss trigger in the cross. Do note there is a 0.7610 AudUsd option expiry Oct 13 with notional Aud2bn.

Move in GbpUsd towards 1.23-handle has the Kiwi up to 0.7094. Am sure we will trip over some stops above the figure so be rather careful.

UsdJpy was initially sold off to 103.28 amid weak Nikkei expectations. However, strong demand lifted UsdJpy to 103.66. Usual remarks from BOJ Governor Kuroda and board member Harada but nothing earth shattering. Regular offers are talked about near 104.00 while buy orders 102.85. 100-Day SMA sits at 103.44. Board member Harada will have a press conference scheduled at 2.00 pm JST today.

UsdCad drifted lower without much cue from oil futures. There is a 1.3200 option expiry today notional $2.1bn, so we might bump into option play under 1.3210. Overall, , we see more selling onto 1.33-handle than bids below. From Bipan Rai, UsdCad levels are closing slightly above the 1.3250 level as follow through has been somewhat weak. Domestic data is thin until the BOC on October 19 while in the US, retail sales and CPI should be enough to keep markets on their toes until then. We’re still long and targeting a move to 1.3700 into the medium-term.

(CIBC)
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